Amidst waves of tech layoffs and decreasing startup funding, many in the startup ecosystem are worried about a recession. This has led to a shift in focus for many founders.
“Twelve months ago companies were investing in product development and user acquisition,” says Jack Barber, an expert within the Strategy and Growth Consulting Practice at Toptal, an exclusive global network of freelance talent. “However, many startups have pivoted and are navigating the current economic environment by prioritizing profitable growth as a route to success.”
In a webinar for Founders Network on June 29, Toptal’s Baxter McConnell and startup founders Brandon Pearlman and Sam Palazzolo shared proven startup growth strategies that can enable founders to scale despite tough economic constraints.
Brandon co-founded an intelligence and analytics software startup, steering the company to an 8-figure valuation in less than four years. He says “growth strategies that were effective 12 months ago are outdated, and need to be optimized to account for changing economic conditions and new customer priorities.”
Sam agrees. “Startups that offer innovative solutions and demonstrate strong resilience and adaptability may be better positioned to navigate challenging economic times and emerge stronger in the long run,” he says. Sam founded a private equity firm after leading a tech startup to a successful PE exit and from his unique perspective, “there are still plenty of opportunities for growth if you know where to look for them.”
The webinar also covered:
- Key principles that enable startups to grow and thrive in challenging times
- Lessons from steering a startup to an 8-figure enterprise valuation in under 4 years
- Strategies for cost optimization, go-to-market planning and people management
- How to embrace innovation, remain customer-focused, and harness a flexible workforce to your advantage
Barriers to Growth
According to Jack, tough economic conditions can hinder startup growth in various ways, the most talked about being funding.
“Investors may become more cautious and reluctant to invest in startups. Traditional funding sources such as venture capitalists, angel investors, and banks may tighten their purse strings or shift their focus to more stable and established businesses. This limited access to capital can make it difficult for startups to secure the necessary funds to fuel their plans for growth,” Jack says.
However, funding isn’t the only factor being impacted. Startup founders also struggle with talent acquisition and retention and face rising costs for hiring.
“The costs and inflexibility of hiring full-time employees can be daunting when budgets are tight,” Jack says. This makes using freelancers an attractive option, as not only are resources typically quicker to onboard and more flexible in their deployment, but hiring a part-time or hourly employee can keep costs down – a win-win situation.”
Startups often run on lean budgets, but during tough economic conditions operational costs tend to increase and founders must find creative ways to reduce spending. To achieve this goal, Sam suggests founders review and optimize expenses and cash flow, and work to improve operational efficiency.
“Conduct a thorough review of all expenses to identify areas where costs can be reduced without compromising essential operations. Look for inefficiencies, eliminate unnecessary expenses, renegotiate contracts, and find alternative suppliers or vendors that offer better terms for your business,” Sam says. “Regular monitoring of key financial indicators will enable you to identify and address areas for improvement.”
While an economic downturn might not seem like the time to invest, Brandon recommends prioritizing expenditures that bolster growth.
“Focus on investments that directly contribute to revenue generation or cost savings in the long run,” Brandon says. “Consider the potential return on investment (ROI) and prioritize projects that are essential for growth while deferring or scaling back non-critical initiatives. For example, investing in the right technology can unlock new revenue streams or operational efficiencies. Adopting automation tools like cloud computing and data analytics can help streamline operations, improve decision-making, and optimize resource allocation across your business.”